BIG HOUSE, Small House

I always enjoy talking with my neighbors, who are mostly retired, and listen to their stories growing up. Some of them grew up in our neighborhood and knew each other since they were little. One of them used to swim in our swimming pool (now covered with a redwood deck) in the summer when he was about seven or eight.

Back then people would buy a house and they would stay in it until it is paid off. Neighbors had time to know or befriend each other. Their children grew up or grew old together. Retirement was easier then because there were no mortgages to worry about.

It is very common these days that after building up a little equity, people would sell their house to acquire a bigger and fancier one. There is nothing wrong with doing that, IF you can afford it. If it will put your finances in jeopardy, DO NOT DO IT. 

There are so many things to consider before deciding whether buying a bigger house is the right thing to do. You have to ask yourself the following questions:  

1. Do you have enough time and money to pay your mortgage off before you retire? 
2. Can you afford to pay higher monthly mortgage?
3. Are you prepared to pay higher property tax and home insurance?
4. Can you afford the upkeep of a bigger house?

By staying in the same house they bought long time ago, my neighbors are still paying the property tax based on the original price of the house. The value of their house is also way up compare to the original price they paid. 

The same thing helped us kept upfloat after losing some of our investment income. Having no mortgage to worry about and having a very low property tax made it easier for us to adjust to our new budget. We would really be in trouble right now if we had a mortgage to pay.

If you ask my neighbors for tips on how to retire comfortably, they only have one thing to say; plan on paying off everything while you are still working. When you retire, the only bills you should have are the utility bills. 

Avoid Surprises

During tax season, we always wish that we could claim our dog as our dependent. We could not so we have to pay our dues.

To make it easy for us, we set aside “tax money” in the beginning of the year. We put it in the savings account and pretend that the money does not exist. I always cringe everytime I see how much money we have to give to the government, but it is what it is. 

We do the same thing with other bigger expenses such as car, house and earthquake insurance. Every month, we set aside certain amount. When the bill comes, we have saved enough to pay it off.

My husband and I work well together on this area. He is the bookeeper and I am the moneykeeper. He schedules the payment and I do the paying. In that way, we both have full knowledge of our financial status. There is no surprises. 

How about you? What kind of system do you use? 

Live Within Your Means

A page from my old journal.

Living within your means is one of the most used phrases around. Doing it successfully is another story. I talked about how I was able to survive and save with a thousand dollars monthly salary in my other post. 

One thing that helped me most was focusing on what I have, not what other people have. If I spend my time being envious about my neighbors’ or friends’ abundant lifestyle, then I will start to feel sorry for myself. I would be tempted to live like them even when I could not afford it. 

My roommate was driving a brand new Nissan. My car was a 1988 Dodge. It was given to me by my boss. My friends shopped at Macy's, I shopped at thrift store. I did not care at all. I learned to rejoice with them and be content with what I have. 

Don’t get me wrong. It was my dream to be able to live a good life, travel, and do things that I enjoy most. Until then, I just work hard and strive to improve the quality of my life.

I still keep the journal that I used to monitor my budget. Every cent that I spent was recorded in it. It helped me set my limit prioritize my spending. 

My husband wonders why I would not toss it even after we got married. For me, it is a great reminder that I can be happy and content even when I did not have much.

Watch Your Score

In my previous article, I mentioned how maintaining good credit standing benefited us. It takes discipline and determination before anyone would be able to establish good credit history. I cannot speak for other people but I can share how we did it. 

First, we only maintain three credit cards from major financial institutions. We have one Visa, one Mastercard, and one American Express. We turned down hundreds of credit card offers. Applying to every credit card offer would lower your credit score.

Second, we do not use our credit cards at the same time. We also make sure that when we do use them, the whole amount will be paid off when the bill comes. In that way, we will not worry about late payment. It is another factor that affects credit standing.

Third, we designated one card to use for our regular shopping. It makes it easy for us to monitor our spending. This is the card that gives us cash back for every purchase we make. It is tied up with Costco so we do not have to pay the credit card's annual fee. 

Every year, we receive two cash back checks; one from the credit card company and one from Costco. The amount in those checks covers our Costco membership fee. 

Fourth, we use the other two credit cards just enough to keep them active and in good standing. Two to three times a year would be enough.

Fifth, we only use 10 to 20 percent of our credit limit. It sends a bad signal to the creditor when your balance is more than 50 percent of your credit limit.

The last point is a bonus point. My husband and I competes on who gets the highest credit score. Our finances are consolidated so it is always a tie. 

Yes, it is important that you and your spouse are in the same page. A family that creates good credit together saves together.